China considers adding metals to stockpile plan: sources

Wednesday, 20 June 2012 15:55

Posted by Muhammad Iqbal

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HONG KONG: China's state economic planner is considering ways to reshape the country's programme of stockpiling strategic materials and could include metals such as rare earths, tungsten, indium, molybdenum and tin, two sources with knowledge of the plan said.

Additional stockpiling moves by China, the world's top copper buyer and second largest oil consumer, would be certain to benefit commodities prices, which have lost 9 percent this year, battered by bleak prospects for the global economy.

 China already stockpiles copper and crude, but planner the National Development and Reform Commission has asked state-owned research bodies to research if the additional metals should be included, said one source, who declined to be identified.

The move follows a proposal by officials of the state planner at a meeting in Beijing last month for China to try and boost its stocks of strategic commodities at a time of low prices, said the source, who had direct knowledge of the plan but was not authorised to discuss details.

Prices of key commodities, including oil and copper, fell sharply in May, with London Metal Exchange copper down more than 10 percent from the year high seen in February to stand at $7,572 on Wednesday.

"The timing of the review reflects the urgency of the situation," the source said, adding that May's sharp drop prompted the study, whose conclusions would be incorporated in an updated stockpiling plan due by year end.

"They should be able to pick what metals they want to add in the stockpiling plan in one month. By the end of the year, the whole research work should be done," he said.

Planners would look into building stocks of metals of which China already is a major producer, such as rare earths, tungsten, molybdenum, antimony and tin, said a second source, also speaking on condition of anonymity.

 CRUCIAL ROLE

The state planner plays a crucial role in deciding the volumes to be bought for the stockpiling plan, which kicked off in 2008 and is up for review this year.

Besides copper and crude oil, it covers materials for nuclear power generation such as uranium and rare earths, a source with links to the state planner said, although the central government has not yet begun stockpiling rare earths.

Having a purchase plan in place would allow the designated commodity stockpiler, the State Reserves Bureau, which is an arm of the state planner, to place orders for shipments.

China's target for copper stockpiled under the plan was 2 million tonnes, but it is not clear if the government will increase the inventory target this time around.

The authorities could set up a buying mechanism for copper that establishes conditions such as a price formula which would allow the agency to act swiftly to exploit price volatility, analyst Jing Chuan, research chief at Citic Futures, said, going by comments in reports of government meetings released last year.

Turning to crude, China is expected to complete filling the 170-million-barrel second phase of its strategic oil reserve this year. Analysts said China could have poured around 40 million barrels into its strategic petroleum reserve (SPR) in the first five months of the year, with about 85 million to 110 million barrels still to be added in the second half.

The stockpiling plan is separate from a 3-year temporary programme launched in 2009 with the aim of supporting domestic smelters in the wake of the global financial crisis that ended last year.

Under these two stockpiling programmes, industry sources estimated that the SRB may have received more than 700,000 tonnes of copper in 2009, more than half of which was imported. SRB imported more than 110,000 tonnes of copper last year.

The SRB now may hold about 1.4 million to 1.6 million tonnes of copper stocks. The stocks are typically estimated by sources with links to the government, as China does not reveal the data.

The International Monetary Fund in April estimated China's total copper inventories at about 1.78 million tonnes, excluding material held in exchange-bonded warehouses.

 Copyright Reuters, 2012